The official poverty threshold is low. Many people above the threshold are also poor and look just like the people below the threshold. As a result, there is no reliable way in which subsidies can be targeted only to the people below the official threshold.

By Ashok Kotwal, HT

Criticism of the National Food Security Bill (NFSB) has led to the government dropping the idea of issuing an Ordinance and, instead, saying it would try to get the Bill passed in a special session of Parliament.

But doubts persist over the very concept of the Bill. Is it not extravagant to subsidise food for such a large part of the population when the poor constitute only 30 per cent of the population? Can a poor country afford such spending? Isn’t the Food Bill just corruption by another name? Wouldn’t the Bill lead to a virtual takeover of the grain trade by the central government? As a rising tide lifts all boats, should we not invest in growth rather than spend on consumption? These are all valid questions and we will attempt to answer them.

In a nutshell, we think the Bill is neither populist nor unaffordable. Some of the anxiety over the cost, corruption and the government’s ever-increasing role in the grain market stems from the assumption that PDS will remain forever the main vehicle of delivering the food subsidy. But if the government develops the necessary infrastructure — e.g., UID-linked bank accounts — states will be encouraged to switch to cash transfers. The extra costs of government storage and distribution will then be saved and the problems caused by the distortion of the grain trade will be mitigated. Many worries that arise from the identification of the food Bill with the PDS will disappear.

The Right to Food campaign is right to stress the need for a food subsidy with near-universal coverage but is wrong in its visceral opposition to cash transfers. The result is a food Bill written wholly in terms of an expansion of the PDS. Suggestions for reforms such as cash transfers and the use of biometric ID have been shunted to an obscure chapter despite the fact that the Delhi government has already opted for delivering the food subsidy through cash transfers.

Anyone who has had a cursory look at the food Bill tends to assume it is just expanding the present PDS and, thus, worsening existing problems of leakage, corruption and high costs of storage and distribution. This makes people antagonistic toward the idea of the food Bill. The opposition of the Right to Food campaign to even experiment with cash transfers has harmed the poor by making people sympathetic to the critics of the food Bill.

Cash transfers are often opposed on the grounds of paternalism. “If we give cash to the poor, they might blow it on frivolous things. If we give them food, they will be better nourished.” This can work as an argument for midday meals but not as a justification for PDS, which is nothing but an income transfer: the effect of the subsidy is that households save the money that would have otherwise been used to buy food at market prices.

Why do we need such an income transfer? Because about 90 per cent of India’s labour force makes a living in the informal sector. For inclusive growth, we need to invest in education and skills and remove constraints to the absorption of labour by the formal sector. But we also need to improve productivity in the informal sector, which depends on human capital and access to credit. Financial aid that gives the poor some flexibility in managing their affairs helps improve the productivity of their time. What looks like consumption also works as investment.

But if “the poor” are only the bottom third or so, why offer food subsidy to the bottom two-thirds of India? We often talk about the poor as if it is a well-defined group, but that is hardly the case. The official poverty threshold is low. Many people above the threshold are also poor and look just like the people below the threshold. As a result, there is no reliable way in which subsidies can be targeted only to the people below the official threshold.

Finally, there is the issue of costs. Official projections are that it would cost close to 1.5 per cent of GDP. But even in the most pessimistic scenario, our GDP is expected to grow at 5 per cent per annum in the near future. If we think of the fact that the Bill will cost less than one-third of the growth in the national income next year, it does not seem that unaffordable, especially given its value to the millions who will receive it.

New Delhi : Amid concerns that sticking to Aadhaar card criteria could deprive many people especially in remote areas of benefits of UPA’s ambitious cash transfer scheme, Union Minster Jairam Ramesh today cautioned against a situation when Aadhaar becomes “an instrument of exclusion”.

“Unfortunately many of the beneficiaries of government programmes are outside the network of Aadhaar numbers’ network. So you find that in a very large number of the districts… the Aadhaar coverage is much much below the critical threshold of 75 to 80 per cent,” Ramesh said addressing a conference here.

He said that there is a need to be “very, very careful” to ensure that “lack of an Aadhaar number does not become an alibi of exclusion of the beneficiary. We do not want to to be in a situation, when Aadhaar becomes an instrument of exclusion. That if you do not have the Aadhaar number, you will not get the benefits. We do not want this situation and this situation is very, very probable. One should never discount the probability of a local level functionary saying that since you do not have a Aadhaar number, you are not eligible,” he said.

There have been reports that Centre may bypass Aadhaar to accomplish the Direct Benefit Transfer (DBT) before the scheme is launched on July 1.

The Union Minster also rued that the public sector banks are not responding adequately to the Banking Correspondents (BCs) model, which is absolutely critical for delivering benefits directly into the hands of beneficiaries.

“Private banks have been far more innovative than public banks regarding the use of BCs. To get public sector banks in the framework of BCs has been a challenge. Banks are simply not on board as far as this crucial thing of BCs is concerned,” Ramesh said.

The minister also favoured relying more on post offices to reach out to people in the remote tribal areas than banks, widening and strengthening the network of BCs to include self help groups, Asha workers and other such agencies and moving away from BPL/APL issue while deciding on beneficiaries.

The Congress party has set great store by the direct cash transfers (DCT) scheme, which it has relabelled as direct benefits transfer (DBT), and which it further hopes will result in a direct votes transfer (DVT) scheme and a game-changer in the next elections.

The Rs 64,000-thousand-crore question is: Will it work? Will it deliver the benefits as envisaged? And, more importantly from the Congress party’s point of view, will it deliver the votes?

The short answers are: maybe not, maybe not, and a definite no to the above three questions, in that order.

Memo to Sonia: get reforms going, get growth going.

DCT’s rollout has been patchy so far and the linkage between bank accounts and Aadhaar number seeding is still not 100 percent even in the 43 districts that were the initial targets for small schemes such as scholarships, pensions, et al.

The chances of high success in the big-ticket game-changer schemes like MGNREGA, LPG subsidies and ultimately food and fertiliser subsidies are very limited till 2014. Voters may at best get a glimpse of the promise of the scheme, but any glitches may also get magnified. One could neutralise the other.

The chances of garnering votes is thus limited, since DCT needs at least three to four years to implement properly on a national scale – but this is precisely where the Congress seems to be in too much of a hurry, and hence not paying enough attention to detail.

These are the broad conclusions of a detailed research report on DCT by Espirito Santo Securities (ESS) which discussed the issue with policy-makers, economists, and did some pilot studies where the scheme is being implemented (especially East Godavari district in Andhra).

This is ESS’s conclusion based on early results for DCT even in the first 43 districts where bank penetration and Aadhaar enrolments were supposed to have been very good. The report says only Rs 22 crore has been disbursed using the Aadhaar payments bridge, while more than twice that amount (Rs 57 crore) was paid out using traditional methods. DCT was less than a third of the total amounts disbursed.

If this is the outcome in districts with the best bank-Aadhaar penetration and that too for schemes that anyway involve only cash – scholarships and pensions – and where there is little fraud, one wonders how it will work for the more massive MGNREGA and LPG subsidy schemes that are being targeted for rollout in 121 districts by 1 July and 1 October this year, respectively. The complete national rollout is scheduled for 1 April 2014 – a tell-tale indication of where the election time-table could lie as far as the Congress leadership is concerned.

The Espirito Santo research is certainly not negative on DCT – and nobody beyond Sonia Gandhi’s National Advisory Council (NAC) has serious doubts that it can only be an improvement over the way welfare schemes are implemented right now, with lots of leakages, ghost beneficiaries, and excessive corruption. Estimates of savings for the exchequer range from a minimum of Rs 33,000 crore (according to the PMO) to a wildly optimistic Rs 1,10,000 crore of savings, according to a study by the National Institute of Public Finance and Policy.

The upper-end expectations are clearly pie-in-the-sky given our record of poor implementation of almost any scheme.

In the case of DCT, in particular, the problems lie in the short-term political expectations embedded in the scheme, which raise concerns about whether they will be implemented well enough and with long-term benefits in mind. Just as MGNREGA and farm loan waivers were implemented without great thought being given to scheme design and reviews, DCT too falls into the same basic cracks.

MGNREGA is facing hurdles in its seventh year of implementation, and the outlays on the scheme have been cut from peak levels just before the 2009 elections due to supply side problems (supply side means providing work for those who demand it). The farm loan waivers scheme has been negatively commented upon by the Comptroller and Auditor General (CAG).

Will it be the same story with DCT in 2014? These are Espirito Santo’s conclusions:

#1: Full rollout before 2014 is “extremely unlikely.” The best guess is that “the bulk of the savings will come only after the complete roll-out which may take two to three years.”

#2: Most experts are cautiously positive on DCT, but they dispute the quantum of benefits the government is expecting from it, since few believe that corruption will be eliminated.

#3: ESS does not see “DCT as addressing the near-term fiscal problem. It has to be accompanied by further cuts to subsidies, among other things.”

Conclusion: DCT will not be a game-changer by 2014. ESS says: “We estimate that the impact of DCT will be substantial only post 2015-16, unless the scheme dies down due to lack of political will post the 2014 elections.”

The larger point is this, as Firstpost pointed out earlier. Even in 2009, the Congress party only fooled itself when it thought MGNREGA was a game-changer, when the real thing that delivered it a convincing victory was fast-paced growth from 2003-2008. That, unfortunately, is not the case now.

Memo to Sonia: get reforms going, get growth going. DCT is a direct transfer of benefits to the next government in any case.

MADHAVI CHERIAN, The Hindu

SILO TO BAG: The government’s decision to promote cash transfers in the National Food Security Bill ignores crucial lessons from India’s past at a time when it needs to intervene on both the demand and supply sides to ensure food security for every citizen. Photo: M. Govarthan

The stabilising effect of the Public Distribution System on prices will be lost as beneficiary households turn to the market for their needs

India’s hard won gains in achieving food security are in danger of being undermined by a clause in the National Food Security Bill that encourages States to adopt cash transfers in lieu of food entitlements under the Public Distribution System (PDS). Supporting this view, a recent report by the Commission for Agricultural Costs and Prices (CACP) concluded that the provision of food subsidies in the form of cash would save the government crores of rupees. Additionally, cash transfers will supposedly eliminate middlemen such as dealers and transporters, ensuring that the subsidy reaches intended beneficiaries.

Cash transfers are a solution only if we view the PDS in isolation, rather than as part of a larger food policy. India’s food policy begins with the procurement of rice and wheat and price support operations by the Food Corporation of India (FCI) and the CACP. Each State is entitled to purchase a certain amount of food grains from the FCI at subsidised prices for distribution through its Fair Price (Ration) Shops. It is this distribution end that constitutes the PDS, and what the cash transfers would replace.

Besides not taking into account the devaluing effect of inflation or the role of intrahousehold dynamics when it comes to cash transfers, its supporters do not specify what would happen to the agricultural commodities that are procured by the FCI. As the policy exists today, the government holds millions of tons of rice and wheat, well above the buffer norms required by law. To reduce its stocks, the government has preferred open market operations (to bulk consumers) and export to distribution through the PDS.

Experiments with decontrol

Using those actions as an indicator of the government’s policy orientation, cash transfers arguably are a gateway to greater deregulation of the food market. Relying on cash transfers alone would mean that the beneficiary households would have to turn to the market to meet all their food needs. More importantly, the stabilising effect that the PDS has on consumption and prices would be lost. Cash transfers thus are only a partial substitute to the PDS.

To understand the importance of a broad food policy, we only have to look at India’s brief experiments with decontrol. The government’s policy reaction to the Bengal famine of 1943, which led to the death of 1.5 million people, provides us with a primer of what not to do in a famine situation. At first, there was a complete laissez-faire policy towards food grain trade, which led to hoarding by traders, farmers and consumers. Subsequently, the provincial governments introduced a policy of procurement and distribution of food grains, which failed miserably as they did not have the requisite infrastructure to implement the policy. For example, grains were rotting in Calcutta, the centre of distribution in the eastern region, as the government had not made arrangements to handle incoming stocks. To avoid what was called a “tragedy in unpreparedness,” the government took steps towards setting up a comprehensive food administration, including procurement by the government, the building of buffer stocks and the introduction of rationing.

However, soon after Independence, India abandoned these policies on the insistence of Gandhiji, who by then had started chanting the following prayer, “Controls give rise to fraud, suppression of truth, intensification of the black market and to artificial scarcity. Above all, it (they) unmans the people and deprives them of initiative; it undoes the teaching of self help, they have been learning for generations, makes them spoon-fed.” Shortly thereafter, droughts and floods led to insufficient production, food shortages and price rise. Controls in the form of rationing, price control and distribution had to be reintroduced in March 1949 to deal with the adverse food situation.

The next phase of free markets in food was under the Food Minister, Rafi Ahmed Kidwai, beginning 1952. Improved food grains production in 1953 and 1954 led to declining prices and a temporary break from chronic shortages. Government procurement of food grains was stopped and restrictions on the movement of grains were removed. Paradoxically, even as farmers faced deflationary conditions, there were shortages and price rise in various parts of the country. The instability in prices, combined with adverse weather in the autumn of 1955, had a dampening effect on production.

In 1957, the Ashok Mehta-led Food Grains Enquiry Committee concluded that an expanded money supply, growing industrialisation and urbanisation and increased investment led to enhanced purchasing power. On the other hand, hoarding by traders, producers and consumers as well as speculative activities in anticipation of public investment by the government led to a rise in prices. Additionally, it found that prices were allowed to fall too low in 1955 and that there was no coordinated policy of combating inflation and shortages that began in 1956.

Back to controls

The government had to reintroduce controls and carry-out price support operations to curb the fall in prices. It opened an additional 10,000 ration shops between October 1956 and September 1957, and released its stocks to combat price rise. This episode underscored the need for the government to intervene in the market to influence prices and output. The Food Grains Enquiry Committee recommended the setting up of institutions like the FCI and the CACP for this purpose. The government’s decision to promote cash transfers in the National Food Security Bill presented in the recently concluded session of Parliament ignores these lessons from India’s past.

Since the 1950s, India has made major strides in agricultural production as evidenced by the large government-held stocks of wheat and rice. However, problems of inadequate nutrition, starvation and double digit food price inflation remain. Strengthening of the PDS, as seen in Chhattisgarh and Tamil Nadu, would serve the purpose of ensuring food security for the nation through stabilising prices, production and consumption. As seen in the past, government withdrawal from the food sector can lead to a decline in production and an increase in hoarding and speculative activity. Unlike the PDS, cash transfers cannot counter the resultant shortages and price rise. In a growing economy like India with constantly increasing demand, the government needs to intervene on both the demand and supply sides to ensure food security for all its citizens.

(Madhavi Cherian is a PhD scholar at the Department of Sociology, New York University.)

The government urgently needs to consider 5 ‘Ss’ before it launches itself into this commitment

As a rule, the government likes creating new structures without fully understanding their implications and then disbanding them once criticism inundates the newspaper columns. A lot of time and money is invested in creating these structures and, often, these costs could be higher than the cost they are trying to lower to begin with. The direct cash transfer (DCT) scheme runs a similar risk, since our enthusiasm levels are currently high, and we could go off the track unless certain preconditions are addressed.

It is generally felt that DCTs are a more efficient system than, say, physical subsidies. This does hold when conditions are ideal and back-end structures are in place. Otherwise, there could be contradictions that will make the DCT scheme unsuccessful.

DCTs come into play for two kinds of transfers. The first is where a new structure is created for transferring cash-for-cash transactions. This holds for, say, salaries, pensions and scholarships and so on. The existing scheme has various departments sending cheques to the recipients, who, in turn, deposit them in their own accounts. The second pertains to cash-for-kind transfers. Here, instead of providing the good to the household, a cash transfer of an equivalent amount takes place and can be used to buy the product.

The concept of DCT is based on the much-publicised Aadhaar project where a unique identity (UID) has been provided to people. Since every UID has an account linked to the person, such a transaction would be automatic provided the disbursing authority is linked with the banking systems. Given the volumes involved, this would be a logistical challenge. The advantage for cash-for-cash transactions is efficiency and reduction of leakages provided the identification process is robust. Prima facie, there is nothing amiss here.

When it comes to cash-for-kind transactions, the situation is different because we have to give up the existing structures since substitution takes place. There are essentially five “Ss” that have to be tackled before bringing about any change in the transfer system.

The first is “structures”. We have an elaborate procurement system for food grain that is motivated by, one, procurement for distribution and, two, creation of a buffer. The procurement policy is an open-ended one where farmers can sell a fair average quality to the Food Corporation of India (FCI) at a predetermined price. The idea here is to protect the farmer’s income. Have we thought of what will happen to this policy or FCI (an institution set up for this purpose) when we provide cash transfers, and FCI will then have to address only the issue of buffer stocks?

Second, “systems” have been created for distribution – the public distribution system (PDS). If we have a “conditional cash transfer” in which money given has to be used to buy grain from fair price shops, then the status quo would be preserved – along with the current inefficiencies. However, if it is not a conditional transfer system, then new issues emerge. There are around 500,000 fair price shops across the country that on an average employ one million workers. By introducing cash transfers and disbanding PDS, there will be an issue of unemployment, since it will be hard for these people to reinvent their stores that are mostly located in rural areas. Today, when there is opposition to foreign direct investment in retail, we are talking of the local kirana shops. There will be a lot of noise when we think of displacing these one million workers. Do we have a solution here?

Third, “selection” is an important consideration for a successful DCT scheme. The problem with PDS, besides the ubiquitous leakages, is adverse selection. A lot of people who are not poor take in these entitlements. This becomes acute as we move to kerosene and liquefied petroleum gas. The new scheme on UID is no different from the existing policy of self-declaration; since no proof of income is asked for it runs the risk of adverse selection. In fact, there are a large number of people holding on to the coloured ration cards and not drawing rations. In the new dispensation of the scheme, this could mean free money for them. Do we have a way of screening households or else will we be back to also helping those who do not require assistance?

Fourth, the government is talking aggressively of food “security” with an ambitious target of covering two-thirds of the population. Clearly, there is a major contradiction here. If we are to provide cash transfers, then how do we reach the food grain to the needy, which requires PDS?

Fifth, there has been debate on the food “subsidy” burden. The subsidy is the difference between the economic cost and the issue price for wheat and rice. The economic cost varies between Rs 17 and Rs 24 a kg, and the issue price is around Rs 5 to Rs 8 a kg. This is when the food grain is sold at a fixed price. Now, once the people are paid cash, they have to buy food grain on their own from the market. Based on government data, the price of wheat and rice varies from Rs 15 to Rs 35 a kg in different parts of the country. Two practical problems arise here. The cash to be paid in lieu of subsidy will be substantially higher than the present subsidy amount. Second, with inflation being variable, fixing the prices and, hence, subsidy level across states will be difficult, and one can see a lot of politics coming in the way of arguing for higher levels of allocations.

To make the DCT scheme effective, we need to fix these five “Ss” first or else we would be running conflicting parallel systems. We also need to evaluate the exact benefits of the cash-for-cash transfers before embarking on the more onerous cash-for-kind transfers. Besides, the cash-for-cash transfers alter the mode of payments without addressing the issue of selection. It is, therefore, advisable that we move one step at a time and not get carried away.

The Central Government is doing a direct Cash Transfer into the hands of the Poor Indian Citizens using UIDAI based Aadhar Payment Gateways / Biometric Payment systems / ATM. The key problem areas that we identified through our interactions with block-level and district-level officials, a few recipients, and BCs

are as follows,

Frequent connectivity issues – There were days when the BC was unable to consummate even a single transaction due to lack of connectivity.

Authentication failure – Another common complaint was failure of fingerprint authentication. Field officials gave examples of some recipients who were not able to verify their identity at the micro ATM even after multiple attempts and finally had to visit the bank branch to get the cash.

None of the recipients we interacted with had a bank passbook despite an express provision that all account holders will be provided with a passbook. This gives the beneficiaries no scope to check whether their money received matched the credit in their accounts. In addition, lack of passbooks makes the BC a compulsory channel for payments.

Business Correspondents Commission Payment ir-regular

These intermediaries have to be paid their commissions and incentives on time if the BC-operated, micro-ATM-enabled payment system has to work successfully and with integrity. We found instances of long delays in payments of incentives to the BCs. Further, surprisingly, there lack of clarity on the chain of command. The BCs were not sure whether the bank or the company that had the responsibility of creating the BC network was responsible for their payments.

Overall, our interactions suggested a favourable disposition towards the AEPS, mainly driven by ease of payments at the doorstep instead of a long travel required earlier.

Chief minister Prithviraj Chavan on Wednesday assured the legislative council that possessing an Aadhar number would not be made mandatory for accessing any benefits of government schemes unless 80 per cent of the population of the district has been given Aadhar numbers.

The CM was responding to a calling attention motion moved by Congress MLC Sanjay Dutt and others regarding slow pace of Aadhar registration process. Mr Dutt said that Aadhar number would become mandatory for various things such as gas cylinders, school admissions, PF, pension, scholarships etc.

Mr Dutt said that the citizens are finding it difficult to obtain the Aadhar number because of inadequate number of registration centres and machines for registration. He and other MLCs pointed out that citizens have to wait for hours together to register for thr Aadhar number and in several cases, the cards sent by post have returned undelivered because the address of a person is incorrectly recorded at the time of the registration.

Responding to the motion in the legislative council, Mr Chavan said that the Aadhar Card scheme was an ambitious scheme and that priority was being given to enrol beneficiaries of Central government schemes. “The Aadhar card will be linked to schemes only in the six districts, where direct cash transfers are being implemented. In all other districts, where less than 80 per cent have been registered for Aadhar cards, it will not be made mandatory. These instructions have been issued to all concerned departments,” the CM said.

Earlier, minister of state for IT Fauzia Khan informed the House that till date around 5.43 crore citizens in the state have registered for the Aadhar card and presently, aro-und 4,200 machines have been deployed for registrations. “The government now plans to increase the number of machines used for registering the cards by another 2,000 and the district collectors have been asked to choose agencies at the local level to carry out registration work,” Ms Khan said.

The minister also said that right now 50,000 cards were being generated on a daily basis, which they want to increase to more than a lakh per day. “Those who have registered their names, but not received Aadhar numbers, will be provided e-Aadhar numbers,” she said.

The Direct Benefit Transfer initiative of the government came in for discussion and scrutiny in Sonia Gandhi-led National Advisory Council on February 26. Nandan Nilekani, Chairperson of UIDAI, sought to assure members that Aadhar will not become a tool for exclusion. After the meeting Aruna Roy, one of the foremost critics of the Direct Benefit Transfer initiative said, “We think it is one of the biggest mistakes this country is making i.e. linking Aadhar to welfare delivery”. Mihir Shah, who also participated in the meeting said, “The same concerns seem to be reflected on both sides about managing the transition which is the real problem that is coming in”.

Following are the issues raised by Aruna Roy at the meeting:

– The UID must not be compulsory:

The UID claims to be voluntary method of proving identity but has now become compulsory for anyone seeking government services or social sector entitlements.

– Direct Benefit Transfers (DBT) only adds more hassles without providing benefits to the beneficiary:

The new architecture of using the UID to access existing cash benefits through the bank has only added an extra layer of complicated and complex procedures and has burdened both the programme as well as the beneficiary with little apparent advantage. As of now, this is being tested out in a miniscule number of schemes but plans clearly exist to impose it on the large delivery schemes such as MGNREGA, Rations and Pensions where it will never work and cause complete havoc. Beneficiaries are not receiving anything new through DBTs. The difference from before is the requirement of a mandatory UID number and biometric authentication for both the application process and for use each time they receive a benefit. Any shortcoming in the process can result in beneficiaries losing their entitlement.

– Dismal performance in two months of roll out:

Despite the effort to depict it as a game changer, and deployment of huge resources and government machinery, the success rate has been dismal and pathetic. Two months after the roll out in 20 pilot districts, the total amount of money transferred nationally has been just 5.5 crores through the Aadhar based payment network. In Ajmer district for instance, out of approximately 20,000 potential beneficiaries, only approximately 220 beneficiaries have so far received money in the bank through the Aadhar based Payment Bridge. None of them as yet have received money through a biometric identification system. Therefore, in fact the Aadhar system has had zero success till date. This is despite the fact that the number of schemes taken up initially have been small and therefore should have been manageable. In the Janani Suraksha Yojna for instance, only a 139 women, out of approximately 1400 who have delivered children in the hospital have received money in the bank through Aadhar. Even their payment has been made without biometrics.

Even if biometrics were a 100 per cent efficient and workable the Aadhar based payment network will clearly take decades before it will cover its targeted beneficiaries. This is because enrollment is very slow, banking infrastructure is very poor and the existing short-comings of the scheme are only compounded by the complications created by this new requirement. When DBT is expanded to cover programmes with a large number of beneficiaries such as NREGA and pensions, it is likely to result in huge exclusions and delays. This anticipated problem is now sought to be overcome through the appointment of 1 million banking/ business correspondents (BC) to reach the money to the poor. The BC can by design be anyone for example, a kirana storekeeper, a selfhelp group, or any individual who manages to get selected. To the extent that these are tried systems, they have not worked. It is a system that will create middlemen and agents with very poor accountability. However, by rolling it out in order to make the UID based payment system viable, there will be huge costs to the state exchequer as well as the poor of this country.

Add to this the problems of biometric identification and it becomes clear that it must be immediately dismantled if the poor are to receive their benefits

2. The technical problems with biometric authentication to cover a 100 per cent of the beneficiary population.

3. The need for online authentication where every transaction is sent in real time and an authentication received even in some of the most remote parts.

4. Because this is a closed system which requires 100 per cent efficiency and verification – in the enumerable cases where the system fails, the solution has been to offer manual override through a variety of means. The fact is as soon as you use manual override in such a closed system, it institutionalises potential leakage and fraud. You get the worst of both worlds – the huge harm, cost, and burden of new all encompassing authentication system and the inability to properly monitor the programme itself.

– Net result is exclusion:

Making access to entitlements for the poor that much more difficult, and in certain cases, excluding them all together.

– Experiment on the poor:

This technology is untried and to experiment on the poor is unjustifiable and because it is de-facto compulsory it is also unconstitutional.

– Failed experiment being pushed through:

The roll out is clearly beyond the stage of experimentation, and is being continued despite abject failures.

– Facilitating Cash transfer, abdication of responsibility of government to deliver:

One possible motive for doing this in the welfare sector is to allow the provision of goods and services to be replaced with cash. In many spheres, including the PDS, people in government have been saying that they are unable to deliver efficiently, without corruption and they would prefer to transfer the cash rather than provide the goods or service. If the government were to replace goods and services with cash, it would clearly be abdicating its fundamental responsibility to deliver.

– Feasibility:

No standards have been set to determine feasibility. Current proofs of concept studies are being conducted by the departments themselves.

– Functioning outside of a legal framework:

Recommendation of standing committee has been ignored, and the UID system pushed through at an alarming speed and scale in a legal vacuum despite objections from parliament.

The potential for people and communities to be profiled: Eventually, whether or not this helps in being an efficient delivery system, the aadhar biometric identification will open up the possibility of profiling individuals and communities in an unacceptable manner. Separate silos of information can now easily be merged, and the information misused. This would also pose a fundamental threat to our democratic fabric and affect the fundamental rights of citizens.

Monitoring in the hands of machines and not local communities: Even the de-duplication being claimed has to be examined. So far, no action seems to have been taken against anyone who has used duplicate identities to pilfer benefits. This method of monitoring does not allow immediate local action and it takes places the entire system in a mode of monitoring far removed from the beneficiaries themselves.

Only UID technology being used to the exclusion of other alternative technologies: This is not to say that technology is not useful if used appropriately and wisely. However, the Aadhar system has no place for any alternative technologies like smart cards or localised biometrics. In many cases these maybe more appropriate and better but the centralized Aadhar monolith cannot make space for such innovation or practice.

After the meeting, Aruna Roy and Mihir Shah spoke briefly to CNN-IBN. Here is the transcript of the interview:

CNN-IBN:Why was Nandan Nilekani present at the NAC meet?

Aruna Roy: Nandan Nilekani came to brainstorm with the NAC. He was supposed to meet us long ago and he hadn’t. We all expressed our diverse, different opinions as usual. Many agreed on some issues, many did not agree on some issues. There were all issues about implementation which were expressed. Some approved, some disapproved but this was not an NAC meeting.

CNN-IBN:What is your position?

Aruna Roy: You know my position very well. We think it is one of the biggest mistakes this country is making i.e. linking Aadhar to welfare delivery. So many of us have written about it, have talked about it.

CNN-IBN:Is the NAC divided on this?

Aruna Roy: This was not an NAC meeting. As individuals we have different opinions, some of us agree, some of us don’t agree.

CNN-IBN:What was Nilekani’s presentation about?

Mihir Shah: Nilekani’s presentation was on the Direct Benefit Transfer scheme and the use of Aadhar in it. And he was very responsive to the concerns of NAC members. The essential concern, I believe is that we need to manage the transition well. There is a situation today when not all beneficiaries of government programmes have Aadhar numbers. There is no internet connectivity in large parts of the country. The other concern was people should not be denied benefits if they do not have Aadhar numbers. The transition to a situation where everyone has Aadhar numbers, bank accounts, and internet enabled bank accounts has to be managed very carefully. This could become means of exclusion rather than inclusion. I must tell you that the chairperson of UIDAI, Nandan Nilekani was very clear in his mind there should be no denial of benefits of anyone who does not have an Aadhar number. In fact, he went to the extent to say that if a person does not have fingers or irises there will be what he called a manual override. Given that that is also a possibility, I don’t think we should be apprehensive about the problems caused by Aadhar in the direct benefit transfer by the government.

CNN-IBN:There are questions about the fact that Aadhar now exists in a legal vacuum?

Mihir Shah: What Nilekani said was that the present legal status of the UID does not prevent it from doing what it is doing today. The legal part of it which is yet to be enacted in Parliament (in fact he asked the NAC to help him expedite the process) does not actually come in the way of doing the work that the UIDAI authority is doing today.

CNN-IBN:Is the NAC divided?

Mihir Shah: At least from the meeting today, I got the impression that there is far greater unanimity than I had imagined myself. Because, I think the concerns are shared. And the concerns are also shared by the UID. I think the same concerns seem to be reflected on both sides about managing the transition which is the real problem that is coming in from Kotkasim and all other examples that are being cited. The problem is that if people don’t have bank accounts, if they don’t have Aadhar numbers obviously you cannot use this architecture to use this scheme. But once you do, a large number of NAC members feel that it is a good initiative

The paradigm shift in welfare needs as much public debate as corruptionIndia is at two critical inflection points. Its administrative practice was corrupt, secretive, hierarchical, arbitrary and overtly centralised. The welfare architecture that went with this state leaked like a sieve, produced all kinds of price and productivity distortions, was captured by the powerful and caught in a rigid bureaucratic logic. The revolt against old administrative practice is now being played out in the open. It has not followed a neat institutional logic, but it has brought us to the point where it is clear that business as usual cannot continue. But we are potentially in game-changing territory on the welfare architecture as well. With the launch of Aadhaar-linked cash transfer schemes, we are putting together the building blocks of another possible but exciting paradigm shift. The paradigm change in welfare needs as much public debate and attention as corruption.

In some ways, the political economy effects of the potential paradigm shift in our welfare architecture could be momentous. We are in a moment of great possibility, but we need to think through exactly what we are doing to build this new architecture very carefully. The design of large-scale welfare systems, once institutionalised, is very difficult to change. It took half a century to get modest healthcare reform in the US. Under the 12th plan, there is going to be unprecedented spending on a healthcare system. But there is no evidence yet that we have the foggiest idea of how to design an incentive-compatible system that will actually yield results. Most institutional debates in healthcare, for example, seem blissfully unaware of complex ground conditions and behavioural issues that need to be taken into account while designing the grand new architecture we are proposing.

The potential of Aadhaar has been discussed more. There are legitimate concerns over privacy that still need to be addressed. But the case for moving towards cash transfers is quite compelling. In moral terms, it gives citizens the autonomy to exercise the kind of subtle choice they need to cope with varying and difficult circumstances. There is an obtuse paternalism in claims that the poor cannot make relatively rational choices. The idea of millions of women directly receiving cash in their bank accounts is an enticing and empowering one. The practical case is also quite compelling. It would be a little Panglossian to argue that Aadhaar will eliminate all corruption. But there is no doubt that it has the potential to remove a lot of intermediaries as far as citizens are concerned. In the case of fertiliser and fuel subsidies, it could liberate us from the worst distortions in pricing and the sheer criminality the current system produces.

There are important issues of technical detail in assessing the promise of this paradigm shift now under way. But there are some puzzles about the way in which the political establishment is framing the shift to a new welfare paradigm. First, sections of the establishment seem to think that Aadhaar allows us to bypass the need to build capacity in the state, as if this were one technological solution to a human organisation problem. In fact, the opposite is true. Over the course of its development, Aadhaar will require an even more sophisticated state. There is sophistication in the Aadhaar team, but unless that percolates into all other parts of the bureaucracy we will end up with the same dysfunctional system with a layer of technology. I suspect some of the luke-warmness to the potential of Aadhaar comes from this thought. For years we have, justifiably, been fed the idea of state failure. To turn around and then ask citizens to trust the state with something potentially as game-changing as Aadhaar is still a leap of faith for most. Aadhaar can be a catalyst for state reform. But there has to be more evidence that these changes in the other parts of the state are indeed being catalysed. The rot of the old bureaucracy still casts a shadow over any promise Aadhaar might have.

Second, there is the issue of political framing. The problem with the UPA is that it thinks it can have everything. Hopefully, the fiscal crisis will jolt it out of its stupor and force it to make some choices. So on the one hand, it has to be credited for going down this path of building a new architecture. On the other hand, a lot of its most visible political commitments smack so much of the old, ossified paradigm that you are not sure which way it will eventually turn. The issue of PDS is a complicated one. In part, the complication comes from the uneven development geography of India. In some areas, potential starvation is still an issue; while in most of India the debate now has to shift to nutrition rather than starvation. There is a possibility that the supply response to potential spending in cash may indeed vary. So it is possible that we may need a modest PDS even with cash transfers. But what is clear is that the proposed food security bill is a travesty that promises the worst of both possible worlds. It delivers less than what many states are already delivering; at the same time, its logic is completely at odds with the new supple and flexible architectures that are now becoming a possibility. So Aadhaar, if implemented well, signals the possibility of a 21st century welfare state. The food security bill is a throwback to the 1970s, with all the distortions and rigidities of the old system. Which signal should we pick up?

Finally there is the uncertain political economy. Much has been made of the literature that suggests that cash transfers in Latin America favoured incumbents. Depending on the timing and context, cash transfers can have electoral consequences. But apart from one shot effects, we do not yet know enough about the dynamic political effects of a cash-based welfare regime. Current subsidies have been hugely distortionary. But they were under limits induced by the fear of inflation. Because delivery was relatively hard and ineffective, political mileage was more limited. But with an effective cash based system, the temptation to run ahead of fiscal sustainability and productivity may be even greater.

A less distortionary, more effective and autonomy-inducing welfare state is possible. But we need to attend to it with more diligence. There is no stopping India, if it can use this inflection on accountability and welfare to do away with the old regime and usher in a new.